APEC and Economic Growth

The APEC summit is wrapping up today, with the leaders issuing their statement on the 'The Yokohama Vision – Bogor and Beyond.' Bogor refers to the city in Indonesia where APEC leaders gathered in 1994 to announce 'their shared commitment to achieve free and open trade and investment by 2010 for industrialized economies and by 2020 for developing economies.'

So, how are they doing? According to the leaders' statement released today, the Asia-Pacific has secured substantial reductions in barriers to trade and investment and members are confident that APEC is 'well on track' to achieving free and open trade and investment among member economies.

A review was conducted this year of progress among five industrialized economies and eight volunteer developing economies within the 21-member bloc. Although no specifics were offered in the statement, it says that although there's more work to be done, the 13 economies have made 'significant' progress toward achieving the Bogor Goals.

In terms of actual achievements across the bloc, the statement said that from 2004 to 2009, total trade in goods for APEC economies grew at an average of 7.1 percent per year, while internal trade among members tripled over the same period. The statement added that foreign direct investment into and out of APEC both grew at an average of 13 percent from 1994 to 2008.

According to a PricewaterhouseCoopers report released here this week, this growth has ensured that the APEC region has become the driving force for global growth. As the report notes: 'Just a few years ago, the US economy was considered the locomotive of global growth, with US consumption said to fuel output from the rest of the world. Now, the Asia-Pacific is in the lead position, while many other major economies still struggle with the after-effects of the economic crisis.'

Specifically, it says overall economic growth among APEC members is expected to reach 3.8 percent in 2011 (driven largely by ASEAN countries and China) compared with 2.4 percent in the United States and 1.5 percent in the European Union.

The report goes on to dismiss the idea that developing countries have inherently weak financial institutions, noting that, 'most countries in the Asia-Pacific actually boast much stronger economic fundamentals and significantly improved supervision of their financial institutions.'

It says many of these fundamentals were developed in response to the 1997-98 Asian financial crisis, which prompted many countries to build their foreign exchange reserves, deepen regional economic integration and strengthen government balance sheets.

Growth was the key recurring theme of the statements issued here this week, with leaders also today issuing a three-point growth strategy statement. According to the statement, APEC aims to achieve 'Balanced, Inclusive, Sustainable, Innovative and Secure Growth.'

The statement concurs with the PwC report that APEC economies have played a critical role in stabilizing the global financial crisis, and states that moving forward, the group will exploit its 'size and dynamism' and strength in 'consensus-building' to implement multi-year programmes to underpin 'strong and sustainable' growth.

But as the PwC reports also notes, in the long term this won't be easy. It notes, for example, that while Asia's economies have gotten used to what it says has been 'unlimited' access to markets in developing countries, the export-dependent model isn't sustainable in the long run.

It also adds that the region's economies will have to invest adequately in human capital and focus on boosting productivity and building growth based on 'knowledge and innovation' lest they fall into the so-called middle income trap, where per capita income stalls before it reaches $10,000.